2.1 - Adjustments

Question 1

Adjustments for AGI are often referred to as what 2 other names/terms:

Answer 1

Above the line deductions
Deductions to arrive at AGI

Question 2

How much can one deduct as educator expenses to arrive at AGI (adjustment for AGI)?

Answer 2

Up to $300 of qualified expenses (if MFJ and both educators - can deduct $600)

Question 3

What expenses are explicitly not eligible as qualified expenses for the educator expenses deduction?

Answer 3

Expenses for homeschooling are not qualified expenses

Question 4

What are the three types of retirement accounts

Answer 4

Deductible traditional IRA
Roth IRA
Nondeductible tradition IRA

Question 5

For single taxpayers under the age of 50, the annual maximum contribution to IRAs is limited to the lesser of? What about those single but over the age of 50?

Answer 5

$6,000 or Earned income

$7,000 or earned income

Question 6

For married taxpayers under the age of 50, the annual maximum contribution to IRAs is limited to the lesser of? What about those married but over the age of 50?

Answer 6

$12,000 or earned income of married couple combined

$14,000 or earned income of married couple combined

Question 7

What is explicitly excluded from earned income?

Answer 7

Interest and dividends
Annuity income
Pensions
Alimony executed after 2018

Question 8

When is the adjustment for a deductible traditional IRA allowed?

Answer 8

The adjustment is allowed for a year if the contribution is made by the due date of the tax return (4/15)

Question 9

How are earnings and distributions on deductible traditional IRAs treated?

Answer 9

Earnings - accumulate tax free until withdrawn
Distributions - taxable as ordinary income

Minimum distributions are required to be taken by April 1 the year following the year the taxpayer turns 72 years old

Question 10

There is no deduction for traditional IRAs if what?

Answer 10

The taxpayer participates in a retirement plan and is rich (over 78k for singe or over 130k for MFJ)

Question 11

Can the traditional IRA be deducted for married individuals if spouse 1 has income and spouse 2 has no earned income?

Answer 11

Yes

Question 12

A single taxpayer is 40 yrs old and an active participant in their employer’s retirement plan. Their 2022 AGI is $70,000. Calculate the maximum IRA deduction.

Answer 12

70,000 - 68,000 = 2,000 (over phase out threshold)
2,000 / 10,000 (phase out range) = 20%
6,000 (max deduction allowed) X 20% = 1,200
6,000 - 1,200 = 4,800 total deduction

Question 13

How are contributions and earnings for a Roth IRA treated?

Answer 13

Contributions - not deductible when made
Earnings - accumulate tax free

No deduction is allowed for Roth IRAs, so distribution of principal (contribution) is tax free.

Question 14

The ability to contribute to a Roth IRA is limited by modified AGI by the following amounts:

Answer 14

Single: 129,000 - 144,000
MFJ: 204,000 - 214,000
MFS: 0 - 10,000

Question 15

Roth IRA distributions are non-taxable if it is a qualified distribution. A distribution is a qualified distribution if:

Answer 15

1. It is made at least 5 years after the first day of the year when the fist contribution was made
   And meets one of the following:
2. Taxpayer is 59.5 or older
3. Taxpayer is disabled
4. Taxpayer is a fist time homebuyer
5. Distribution is made to a beneficiary after the taxpayer’s death

Question 16

When are required minimum distributions to be taken for Roth IRAs?

Answer 16

There is no required minimum distributions for Roth IRAs

Question 17

How are earnings and distributions treated for nondeductible traditional IRAs?

Answer 17

Earnings: accumulate tax free
Distributions: earnings are taxed as ordinary income and principal contributions are tax free

Minimum distributions are required to be taken by April 1 of the year following the year in which the taxpayer turns 72.

Question 18

What is the early distribution penalty?

Answer 18

If distributions from traditional (deductible and nondeductible) and Roth IRAs are taken before the taxpayer reaches 59.5 years old, they are subject to a 10% penalty plus the regular tax.

Question 19

Early distributions are exempt from penalty if:

Answer 19

The distributions are used for:
Child
Home
Insurance
Medical
Education

Question 20

What happens to the funds that are transferred from a traditional IRA to Roth IRA?

Answer 20

They are taxed as it it is a distribution and are NOT subject to the 10% penalty

Question 21

The adjustment fr education loan interest is limited to what amount?

Answer 21

$2,500 per year

Question 22

Who cannot claim the student loan interest expense adjustment?

Answer 22

A dependent of a taxpayer
Single individuals if AGI is over $85,000 and MFJ if AGI is over $175,000

Question 23

Health savings accounts enable workers to do what:

Answer 23

Workers with high deductible health insurance plans to make pretax contributions of up to $3,650. This is increased by an additional $1,000 if 55 or older.

Question 24

Distributions from an HSA that are not used to pay qualified medical expenses are:

Answer 24

Includable in gross income and subject to 10% penalty

Question 25

What is a high deductible health insurance plan?

Answer 25

A plan that has at least $1,400 annual deductible for self coverage or $2,800 annual deductible for family coverage

Question 26

Who is eligible for moving expense deductions?

Answer 26

Members of the armed forces

Question 27

What portion of self-employment tax is deductible to arrive at adjusted gross income?

Answer 27

50%

Question 28

What portion of self-employed health insurance is deductible to arrive at adjusted gross income?

Answer 28

All health insurance premiums are deductible

Question 29

What are the 3 most common self-employed retirement plans?

Answer 29

Simplified employee pension (SEP) IRA
Savings incentive match plan fr employees (SIMPLE) IRA
Solo 401k

Question 30

What is the max contribution to a SEP IRA?

Answer 30

The lesser of:
20% of self employment net income (that’s already been reduced by 50% of self employment tax)
OR
$61,000 (67,500 is 50 and older)

Question 31

What is the maximum contribution for SIMPLE IRAs?

Answer 31

The lesser of:
100% of self-employment net income (that’s been reduced by 50% of self-employment tax)
OR
$14,000 ($17,000 if 50 and older)

Question 32

What is the maximum contribution for Solo 401k?

Answer 32

The lesser of:
20% of self-employment net income (that’s been reduced by 50% of self-employment tax)
OR
$61,000 ($67,500 if 50 and older)

Question 33

Taxpayer has self employment net income (after deduction of 50% of self employment tax) of $100,000. Calculate the taxpayer’s maximum allowable deductible contribution to their SEP IRA self-employed retirement plan.

Answer 33

100,000 X 20% = 20,000
20,000 < 61,000
Max contribution deduction = 20,000

Question 34

How is alimony payments executed before 2018, child support, and property settlements treated for the payee and for the payor?

Answer 34

Alimony - income to the payee & adjustment to the payor
Child support - Nontaxable to the payee & nondeductible to the payor
Property settlements - Nontaxable to the payee & nondeductible to the payor